Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica

The classic dual economy models of developing countries hold minimum wages (among other institutions) accountable for persistent dualism. They note that applying or enforcing minimum wage laws in only one sector of the economy will create wage differentials which will not be eroded with labor mobility to the high wage sector. In this paper we use 12 years of micro data on thousands workers living in Costa Rica to test whether legal minimum wages have a differential impact on the wages of workers in the formal sector vs. informal sector, defined in various ways in accordance with the dual development models. The evidence from Costa Rica is contrary to the assumptions of these models. We find that increases in minimum wages not only raise the wages of workers in the urban formal sector (large urban enterprises) who are covered by minimum wage law, but they also increase the wages of all other workers covered by minimum wage legislation in what are traditionally regarded as informal sectors and where the legislation is often considered not to be enforced. Specifically, we provide evidence that minimum wages increase the wages of workers in small urban enterprises, large rural enterprises and small rural enterprises. Further, our results suggest that higher legal minimum wages raise the average wage of workers in these “informal” sectors more than in the urban formal sector. We concluded that in Costa Rica minimum wages are being enforced in the rural and small scale sectors and may actually work to reduce average wage differentials between these sectors and the urban formal sector. On the other hand, minimum wages have no significant impact on the wages of workers in another sector that is regarded as informal but which is not covered by minimum wage legislation: the self-employed workers (both urban and rural). Thus, one could argue that minimum wages may contribute to dualism between the formal and informal, defined as self-employed vs. salaried workers. However, we find no evidence of the bleaker scenario, that self-employed earnings are being lowered by minimum wages.dual economy, informal sector, minimum wages, wages, Costa Rica, Latin America

Minimum wage policy and inequality in Latin America and the Caribbean

In this chapter we review the literature and inform policy debates about the effects of minimum wages (MW) on income inequality in Latin America and the Caribbean (LAC). Earnings are the primary source of income among families, especially in the lower part of the earnings and household income distribution. It is reasonable, therefore, to expect increases in the minimum wage to have a significant impact on earnings and income inequality

Moving in and moving up : labor markets dynamics of women and men in Nicaragua

This study examines transitions into and out of advantageous labor situations. Education is the most important personal characteristic for employment in non-agricultural advantageous labor markets. It is important to distinguish “successful,” “favorable” or “advantageous” self-employment and small-scale entrepreneurship, from self-employment that exists only because women cannot find favourable jobs in the formal sector. The paper focuses on factors that help men and women achieve advantageous jobs and whether those factors differ between men and women. Policy-making towards provision of daycare is essential for women’s success in labour markets

Moving in and moving up : labor markets dynamics of women and men in El Salvador

In terms of this paper, economic empowerment occurs when women are employed in jobs which provide them with a good salary and/or the possibility of improving their economic status. The research examines employment, and personal and institutional characteristics that promote the entry of men and women into the labor force, as well as the ability of women to obtain better jobs once they enter. In particular the focus is on characteristics of women who become empowered and successful in the labor market. The paper provides results regarding key characteristics of those who transition from unsuccessful states into advantageous employment and self-employment

Hogares monoparentales encabezados por mujeres y pobreza en Costa Rica

Incluye BibliografíaEl ingreso real medio de las familias en Costa Rica aumentó a finesde los años 1990 y comienzos de los años 2000, pero la pobreza no seredujo. Aquí se sostiene que en el país la aceleración del crecimientoeconómico no se tradujo en una caída de la pobreza porque la estructurafamiliar y el mercado laboral experimentaron cambios que tuvieron unimportante sesgo de género. Concretamente, el incremento de hogaresmonoparentales encabezados por mujeres elevó el número de mujerescon hijos que se incorporaron a la fuerza laboral, muchas de ellaspor primera vez. Estas no pudieron o no quisieron encontrar trabajosde jornada completa en el sector formal, donde las remuneracionesson más altas, y terminaron desempleadas o trabajando a jornadaparcial por cuenta propia. Así, las condiciones del mercado de trabajocontribuyeron a los bajos ingresos de los hogares vulnerables, enespecial aquellos monoparentales encabezados por mujeres

Female-headed single-parent households and poverty in Costa Rica

Includes bibliographyAverage real family incomes rose in Costa Rica in the late 1990 sand at the start of the new decade, but poverty rates did not fall. Hereit is argued that economic growth in the country did not translate intoreduced poverty during this period because of changes that took placein household structure and in the labour market, and that these changeshad an important gender dimension Specifically, a rising proportion offemale-headed single-parent households led to an increase in the numberof women with children entering the labour force, many of them for thefirst time. Many of these mothers were unable to find or unwilling toaccept full-time work in the higher-paying formal sector and ended upunemployed or working part-time as self-employed workers. These labourmarket phenomena contributed to low incomes for vulnerable households,especially single-parent households headed by women

South-South Migration: The Impact of Nicaraguan Immigrants on Earnings, Inequality and Poverty in Costa Rica

Summary More than half of those who emigrate from developing countries move to other developing countries, yet there have been few studies of the impact of this South-South migration. In this paper, we examine the impact of migration from one developing country, Nicaragua, on the labor market in another developing country, Costa Rica. We find little evidence to support the hypothesis that Nicaraguan migration to Costa Rica was an important factor contributing to falling earnings, increased inequality or stagnating poverty in Costa Rica.Costa Rica Latin America migration earnings inequality poverty

Minimum wages, wages and employment in various sectors in Honduras

This paper contributes to our understanding of the impact of minimum wages on labor markets of developing countries, where there are often multiple minimum wages and compliance is weak. We examine how changes in more than 22 minimum wages over 1990-2004 affect employment, unemployment and average wages of workers in different sectors, defined by coverage under the legislation. The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a relatively large reduction in employment of - 0.46%. We find that public sector wages emulate minimum wage trends but the higher cost of labor does not reduce employment there. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed; yet, higher minimum wages may create more unemployment. We conclude that (even under our upper bound estimate of the effect on the wages of workers) the total earnings of workers in the large-firm covered sector fall with higher minimum wages in Honduras, which warrants a policy dialogue on the structure and level of minimum wages.Employment Unemployment Minimum wage Wage Central America Honduras Covered sector Informal sector